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Milton Friedman and Social Responsibility View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by NORA - Norwegian Open Research Archives Milton Friedman and Social Responsibility An Ethical Defense of the Stockholder Theory by Karl Martin Ekornes Mertens Master Thesis in Philosophy (FIL4090) Department of Philosophy, Classics, History of Arts and Ideas The University of Oslo 15.11. 2013 Thesis advisor: Ole Martin Moen II Milton Friedman and Social Responsibility – An Ethical Defense of the Stockholder Theory By Karl Martin Ekornes Mertens III © Karl Martin Ekornes Mertens 2013 Milton Friedman and Social Responsibility – An Ethical Defense of the Stockholder Theory Karl Martin Ekornes Mertens http://www.duo.uio.no/ Print: CopyCat, Nydalen IV Summary The subject-matter of this thesis is business ethics. The purpose of this thesis is an attempted revival of the stockholder theory, to show that it is a viable position, but in need of augmentation. The thesis defends the stockholder theory as envisioned by Milton Friedman, that the only social responsibility of corporations is to increase its profits, while staying within "the rules of the game" which are a set of side-constraints on profit-maximization. Friedman offers two broad set of arguments in favor of his position. The first is a set of deontological arguments in favor of fiduciary duties and against Corporate Social Responsibility (CSR). The second line of argumentation is a utilitarian or broadly consequentialist argument against corporations taking on CSR. Using a framework from Nicholas Capaldi of rival business ethical paradigms, I argue that the opponents who attack the stockholder position do so from a set of radically different assumptions and that their arguments do not dislodge the internal consistency of the stockholder theory, nor do they effectively challenge its ethical base. Further, I show what would be required for an argument to be successful against the deontological argument for fiduciary duties and illustrate that the most common arguments for corporations to take on a wider set of social responsibilities and obligations than the stockholder theory allows for fail in their present form. The arguments for the dismissal of the fiduciary duties rest on assumptions that are counter-intuitive and are not properly grounded. This makes the arguments too weak to oust the stockholder theory. The stockholder theory does have a number of serious weaknesses that need to be remedied if the position is to function as a viable and fully functioning normative business ethics. The stockholder theory provides the goal of business as profit-maximization, but provides little in regards to the specifics of how executives are to maintain the interests of the stockholders. A further, weakness is the side-constraints that are ambiguous and that could dilute and undermine the stockholder position. It also makes it susceptible to cultural and ethical relativism. I argue that the side-constraints need to be replaced. I then proceed to briefly indicate a possible neo-Aristotelian solution that would augment the stockholder theory. V Forword This thesis could be viewed as an act of justice towards Friedman. It has grown out of my malcontent with how business ethics is presently taught and how easily Friedman is dismissed on the flimsiest of grounds. It has been a long journey getting here. Thanks to all who have been supportive. Patience is a virtue. First and foremost, I would like to thank my supervisor, Ole Martin Moen, for generous use of his time and his many succinct comments. I would also like to thank my parents, Gunnhild Ekornes Mertens and Karl-Heinz Mertens for their aid and encouragement, and my brother Torbjørn Ekornes Mertens, who has been solid as a rock. I would also like to thank my good friend Harald Waage for many discussions throughout the years. May the Deii Lucrii smile upon you all and make your ventures profitable Karl Martin Ekornes Mertens, Oslo, November, 2013 VI Table of contents 1 Introduction ........................................................................................................................ 1 2 Friedman and the Stockholder theory ................................................................................ 5 2.1 Friedman’s position ..................................................................................................... 5 2.2 The deontological argument ........................................................................................ 9 2.2.2 Corporations and moral personhood .................................................................... 9 2.2.3 Principal vs. agent .............................................................................................. 11 2.3 The consequentialist arguments ................................................................................. 15 2.3.1 Imposing taxes and the eradication of the distinction between government function and private enterprise ......................................................................................... 15 2.3.2 The argument from uncertainty and lack of specialized knowledge .................. 16 2.3.3 Friedman’s reply to the impatience of those demanding immediate business action to solve social problems where government fails .................................................. 18 2.3.4 Philanthropy vs. investment ............................................................................... 19 2.3.5 Adam Smith and the public good ....................................................................... 21 2.4 CSR as “socialistic” and “subversive” ...................................................................... 23 2.5 On self-interest and side-constraints .......................................................................... 24 2.5.1 Friedman’s use of self-interest ........................................................................... 25 2.5.2 The side-constraints ............................................................................................ 27 2.5.3 The level of obligation called for by Friedman .................................................. 29 3 Answering the moral charges leveled at the stockholder position ................................... 35 3.1 Two rival paradigms .................................................................................................. 36 3.2 Arguments against the internal logic of Friedman .................................................... 40 3.2.1 The Six arguments of McAleer .......................................................................... 40 3.2.2 Feldman and the dichotomy of making profits or benefitting others ................. 48 3.2.3 Grant’s three critiques of purported logical fallacies ......................................... 50 3.3 Ethical arguments against Friedman .......................................................................... 53 3.3.1 Is it an ethical position at all? ............................................................................. 54 3.3.2 Can Friedman’s theory be defended by any reasonable ethical theory? ............ 58 4 Bolstering and buttressing the Stockholder position by arguing against the underlying assumptions of CSR ................................................................................................................. 68 4.1 What is required of an argument to counter the deontological argument.................. 68 4.2 Arguments given in favor of social responsibility ..................................................... 71 VII 4.2.1 The noblesse oblige argument ............................................................................ 71 4.2.2 Social responsibility as arising out of social power and proportionality ........... 72 4.2.3 Business as citizens ............................................................................................ 75 4.2.4 Social permission and trusteeship ...................................................................... 76 4.2.5 Social obligations and social contracts ............................................................... 78 4.2.6 What about a utilitarian defense of CSR? .......................................................... 83 5 The weaknesses of the stockholder position and the need for augmentation ................... 86 5.1 The ad hoc nature of the side-constraints .................................................................. 86 5.2 The law, externalities and the danger of the stockholder position collapsing into the stakeholder position. ............................................................................................................. 87 5.3 What if doing CSR is the social norm and ethical custom? ...................................... 89 5.4 Going beyond moral minimalism .............................................................................. 90 5.5 Globalization, different cultures and conflicting ethical values ................................ 95 6 Conclusion ........................................................................................................................ 99 Bibliography ........................................................................................................................... 101 VIII IX X 1 Introduction Imagine that you are the corporate manager of a company. You have been hired by the board of directors to make the company more profitable. Across your desk is a proposal from a local charity urging you to donate $ 800 of the company’s money to help the local soup kitchen
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